RBI Hikes Repo Rate, RBI Monetary Policy Review: Das, meanwhile, said the growth forecast for the current fiscal remains unchanged.
The Reserve Bank of India has increased the repo rate by 0.50 basis point. With this, the key policy rate has reached 4.90 per cent, the highest level in two years. This hike will affect an increase in the monthly installments of home loans and vehicular loans. The Monetary Policy Committee, which decides whether to increase the key lending rates or not, voted unanimously in favour of increasing the repo rate.
What is the repo rate?
The repo rate is the rate at which the RBI lends money to commercial banks. Increasing the repo rate means the banks get funds at greater rates. This makes lending more expensive. The more expensive home loans mean the banks will borrow less, which inturn reduces liquidity in the market. It also decreases demand. A decrease in demand eases inflationary pressure.
How much difference will an increase of .50 per cent make?
If a person has borrowed Rs 10 lakh at a rate of 6.5 per cent for 20 years. Her loan EMI will be around Rs 7,500. In 20 years, she will have to pay around Rs 7,90,000 as interest. She will have to pay Rs 17,90,000 over 20 years for a loan of Rs 10 lakh.
Now if the RBI increases the repo rate by .50 per cent, the banks will lend at an increased rate of 7 per cent. After this, she will have to pay an EMI of Rs 7,753, which is Rs 297 more than the EMI at 6.5 percent interest. She will have to pay over Rs 18,60,717 over 20 years, Dainik Bhaskar reported.
Similar projections can be calculated for other interest rates as well.
Why was the repo rate increased?
The repo rate was last increased in May due to inflationary pressures exerted by the high crude prices and high domestic food prices. In April, the consumer price index-based inflation had jumped to 7.79 per cent, the highest in 8 years. For this fiscal, RBI has upped the inflation projection from 6.7 per cent to 5.7 per cent. It is mandatory for RBI to do everything in its power to keep inflation between 2-6 per cent. Hence, in order to keep inflation in check, the apex bank has increased the repo rate.
RBI, meanwhile, said the growth forecast for the current fiscal remains unchanged. He, however, cautioned against negative spillovers of the Ukraine-Russia war. Key highlights.
Key lending rate (repo) raised by 50 basis points to 4.9 per cent; 2nd increase in 5 weeks
* Repo rate still remains below pre-pandemic level
* To focus on withdrawal of accommodative policy to tame inflation and support growth
* Inflation projection for current fiscal raised to 6.7 pc from 5.7 pc
* Edible oil prices remain under pressure on adverse global supply conditions, notwithstanding some recent correction
* Tense global situation imparts considerable uncertainty to domestic inflation outlook
* GDP growth forecast retained at 7.2 pc for current financial year
* Economic activity gathering strength; normal monsoon to boost rural consumption
* Credit cards to be linked with UPI; RuPay credit cards to be linked first
* Lending limits for housing loans by co-op banks doubled
* Rural co-op banks permitted to lend to commercial Real Estate - Residential Housing (CRE-RH) sector
* Urban Co-op banks allowed to offer door-step banking
* e-mandates on cards for recurring payments enhanced to Rs 15,000 from Rs 5,000.
With inputs from PTI
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